Standard hit by £6bn loss on share deals

Standard Life, Europe's largest mutual life insurer, will this week reveal that plunging share prices cost it £6 billion last year.

It is also expected, controversially, to ask the Financial Services Authority to waive solvency rules to allow it to weather any future sharp falls in world stock markets.

But the Edinburgh-based firm's chief executive, Iain Lumsden, will reiterate his belief that shares offer the best long-term returns to policyholders, even though Standard has lost more than £12bn in the last three years.

Critics say Standard has been hit disproportionately by the equities slump because its funds were more exposed to stock markets than competitors.

'Standard was saying shares were cheap when the FTSE 100 index still had another 1,000 points to fall,' claims Ned Cazalet, an independent research analyst. 'Their gamble has not paid off.'

But Lumsden is expected to argue that over a 25-year or 30-year period - the average investment lifespan for most policyholders - three or four years of falling markets should not be viewed with alarm.

The solvency waiver that Standard is seeking from the FSA will allow it to retain its exposure to equities without breaching capital adequacy rules. The FSA has allowed insurers to apply for waivers in order to prevent firms from dumping shares to comply with rules drawn up by the regulator at a time when few envisaged such a lengthy bear market.

However, over the last 18 months, Standard's with-profits fund has cut its equities exposure from 78 per cent to 55 per cent; although even that is around 10 per cent higher than many rivals.

Earlier this month, Standard became the latest UK life assurer to reduce returns on its long-term savings products when it shrank bonuses. The mutual joined other life offices, including Norwich Union and Prudential, to slash bonus payments to with-profits policyholders.

Standard has warned that there could be further pain to come; Cazalet expects more bonus reductions in May. 'It's the obvious way to recapitalise their balance sheet,' he says.

Standard believes markets will recover but long-term investment returns will not match those of past years.

The insurer is likely to need to continue reducing the amounts it pays to customers who take retirement benefits or whose life policies mature.